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On July 28, 2021, certain members of Congress introduced the Nondebtor Release Prohibition Act of 2021 (S. 2497) (NRPA), which proposes to amend the Bankruptcy Code to, among other things, restrict courts’ ability to approve third-party releases of nondebtors and related injunctions under plans of reorganization or otherwise in Chapter 11 cases. Although the NRPA was introduced in response to testimony criticizing the third-party releases and injunctions proposed in the USA Gymnastics cases and Purdue Pharma cases, the NRPA’s provisions are not limited to the mass tort context, and, if enacted, would have significant implications for all Chapter 11 cases. The authors submit that while some of the concerns regarding nonconsensual third-party releases may be valid, the NRPA goes too far in limiting what can, in the right circumstances, be a valuable tool in restructurings.
By Adam Shpeen, Aryeh Ethan Falk and Stephen Ford
Two Recent Cases Shed Light on Potential Risks to Preferred Equity Holders in Chapter 11
Preferred equity is a varied and flexible instrument, but, in practice, it typically has a limited number of common features. One feature is that it is entitled to a “liquidation preference” ahead of common stock. Whether the liquidation preference of preferred equity entitles preferred shareholders to priority over common shareholders in a Chapter 11 reorganization is a question that figured prominently in two recent high profile cases.
By Michael L. Cook
“Good-faith purchasers enjoy strong protection under [Bankruptcy Code] §363(m),” but the silent asset buyer (“B”) with “actual and constructive knowledge of a competing interest” lacks “good faith,” held the U.S. Court of Appeals for the Seventh Circuit.
By David E. Sklar and Cheryl A. Santaniello
Federal bankruptcy courts have been unavailable to marijuana businesses due to the Schedule I status of marijuana. The United States Trustee’s policy is to move to dismiss or object in each case involving marijuana assets, because they cannot be administered under the Bankruptcy Code.
By By Stuart B. Newman and Steven H. Newman
The Small Business Reorganization Act created a new pathway for small businesses to remain in control of running their businesses, which is the usual reason for choosing to seek relief under Chapter 11, while eliminating many of the reasons that typical Chapter 11 proceedings exhausted the patience, and wallets, of both debtors and creditors.